Dividend Increase: Pfizer (PFE)

Pfizer (PFE) has announced its 2017 dividend increase of $0.02 per share for the quarter. This makes the boner pill maker’s dividend rise from $0.30 quarterly to $0.32 (see what I did there). This is good for a 6.67% annual increase to the dividend and falls exactly in line with my expectations for the year.

Taking into account the new dividend, the dividend yield on PFE sits at 3.94%. This marks the 8th straight year of dividend increases for the drug maker.

As you can see, this is the 8th straight year for a dividend increase. 2009 was a rough patch and the dividend was slashed in half starting with the second quarter dividend. Prior to that cut, from 2005-2008, the dividend was growing fast, maybe too fast at 20%+ for a few of those years. I always prefer a slower growing sustainable dividend over a fast, unsustainable dividend. I think the company learned the lesson as well. If we look at the growth of the dividend from 2005-2017, we see an arithmetic average growth of 6.67% for the yoy dividend growth and 5.84% on the annual dividend. Those numbers are largely useless to us as investors (the dividend cut is being understated with arithmetic mean), so I included the geometric mean of 4.44% to give the true picture of the dividend growth. That 4.44% outpaces inflation, so I’m happy.

PFE vs S&P500

Does PFE rise to the occasion versus the S&P500? Well, unfortunately there are performance issues. Looking back 10 years, we can see the S&P500 beats PFE, mostly due to the last couple years. So they haven’t performed when it matters. They come up a little short. They need to rise to the occasion. Alright, I’ll stop.

Company Stats:

Market Cap: $197 Billion

Beta: 0.96

PE Ratio: 32

Dividend Yield: 3.94%

Payout Ratio: 118%

Profit Margin: 11.61%

Total Cash: $14.42 Billion

Total Debt: $44.07 Billion

I hate that high payout ratio and high debt load. Fortunately the company has substantial free cash flow to support the dividend. Still the balance sheet is just not as attractive as say JNJ.

Conclusion:

I wouldn’t pick up PFE at the current price of 32.48. At or just below 30 would be a trigger point to add to my position. Around $35 I’m either closing out my position or shorting some calls and letting the markets make the decision for me. JNJ just looks better to me at this point in time. For the dividend in 2018, I’m expecting between a 1-2 cent increase. The company just looks a little limp.